Personal Finance

5 Simple Steps to Financial Freedom

Close up of cash money
Credit: Wirestock / stock.adobe.com

Managing your money can feel daunting sometimes, but you can take some simple actions and strategies to give yourself the best financial foundation to work from.

There’s a lot of posturing and jargon used by money “professionals,” which often puts people off the idea of taking control. But it doesn’t need to be like this.

Here are 5 steps to put you on the path to financial freedom.

1. Spend less than you earn

This step is an essential building block for financial independence. Without this, breaking free from your monetary shackles is almost impossible.

The difference between what you earn and what you spend can make or break your hopes of being financially free. However, it’s not as easy as it sounds. Otherwise, everyone would be doing it.

So here are two tips to help:

  • Create a budget and track your spending. I like the 50/30/20 rule, where 50% of your monthly paycheck goes toward essential living costs, 30% is for discretionary spending and 20% is for saving.
  • Pay yourself first. Instead of trying to save whatever is leftover every month, put your money into a separate account straight away.

2. Pay off your debt

Debt can be a huge obstacle to overcome, but you want it out of your life as soon as possible. Not all debt is equal. Some types of debt can be more insidious than others.

So, the first thing you do is look at all your debt. Whether it’s credit card payments, car financing, student loans or your mortgage — just get it all written down so you have a clear picture.

There are a few popular methods for tackling debt, like the avalanche and snowball strategies.

It’s important to remember that some debt, like student loans and mortgages, will be a long game. Just try to chip away at everything (especially the expensive debt with high interest that compounds).

Whenever you feel that you’re taking one step forward and two steps back with your finances, lingering debt is probably the reason.

3. Invest as much as possible

After getting your budgeting and debt under control, you’ll want to start building wealth from this base.

Investing is one of the most accessible ways to start making your savings work harder. If you’re just keeping cash, you’re fighting an uphill battle against inflation and low rates of return.

Your investment strategy depends on your time horizon, goals and risk appetite. But if you want to get started in the simplest way, look into a global equity tracker fund, ideally using a low-cost brokerage account.

These funds are usually fairly diverse, cheap and easy to find. Then, if you want to get more involved with your investments, you can start putting money into sector-specific or region-specific funds that mirror an index like the Nasdaq 100, for example.

Investing should be for everyone. Even if you’re not interested in the wider economy, you should take an interest in leveling up your own financial situation, and the best way to do this over the long run is by investing.

4. Make the most of tax-efficient accounts

Now that you’re well on your way to financial freedom, the next step is to try and get your money working as hard as possible by taking care of the smaller wins that sit on the margins.

One of the best tools at your disposal will be tax-efficient accounts. Minimizing the tax you pay is a proven shortcut to reaching your financial goals.

Your tax situation will be unique to your circumstances, but where possible, ensure you’re using tax-advantaged accounts such as:

Shielding your investments from tax will let you build wealth faster because it means keeping more of your money and makes sure you don’t sacrifice the additional growth that money could make.

5. Stay consistent

With all your financial freedom building blocks in place, you want to set a realistic plan to stay consistent.

Ideally, everything should just tick along in the background as you enjoy and experience life. Becoming financially independent is a marathon and not a sprint. So, once you’ve got all your ducks in row, automate as many processes as possible and:

  • Pay yourself first
  • Have a logical plan for paying off debt
  • Invest regularly (on autopilot if that’s easier)
  • Minimize how much tax you pay (and reduce any other costs where possible)

With all this in place, you can focus on what’s important to you (outside your finances). You’ll be surprised by how quickly you end up in a much better position than today.

Bottom Line

Building a solid financial foundation isn’t as tough as you might think. Once you have the basics sorted, you’ll be well on your way to a more financially free life. It’s a much better plan to take some simple steps instead of overcomplicating things, leaving you in a state of inaction. Taking the first steps is always the biggest leap.

About the Author

George Sweeney (DipFA) is a deputy editor at Finder, specializing in investing. As a personal finance expert, he helps Americans and audiences globally make informed decisions about their finances. His expertise includes investing, tax, retirement, mortgages, cryptocurrency and more. Prior to joining Finder, George ran a successful freelance writing business.

George is a qualified financial adviser in the UK and has written for notable publications such as Nasdaq, The Motley Fool, Online Mortgage Advisor, MSN and Yahoo Finance. He is also regularly featured and quoted in national media outlets, including The Guardian, The Telegraph, The Daily Mail and others.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Finder

Finder is a global financial technology platform which allows members to save, invest and spend via the Finder mobile app and website. Finder’s mission is to help people make better financial decisions and work with partners to connect via API into the Finder platform to offer saving and investment services and products. Finder was founded in Australia in 2006 and now operates in 50+ countries with 2,600+ product partners and 10+ million visits every month, serviced by 500+ crew passionate about helping our members achieve their full financial potential.

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